Nine family physicians have decided to leave Indianapolis-based American Health Network (AHN) in favor of practicing their profession trade as part of Riverview Hospital. The Indianapolis Business Journal’s reporting of this seemingly innocuous decision by nine doctors offers rich insight into the convoluted nature of the American health-care payment system.
According to AHN, these doctors can now bill their services for around three times what they were asking patients to pay when they were part of American Health Network. AHN estimates that the additional billings will add $6.9 million to the health-care tab paid by the Indianapolis community for health care.
A number of reasons may have prompted Riverside to want these physicians to come to work for the hospital, but the bottom line appears to be this: Because these physicians are employed by Riverside, the hospital can charge higher fees for their services. In fact, the fees are three times higher than the physicians charged before they worked for the hospital. Are the services now three times more valuable to patients? Doubtful. Are the outcomes delivered by these physicians significantly better? Probably not. Why then, the difference?
As they say, “it’s complicated.” Let’s try to uncomplicate it.
In its quest to engineer an equitable and efficient payment system, the federal government regularly adjusts the payments it will make to the medical community for serving Medicare patients. Because Medicare is such a large and significant component of health care, private insurers often establish payment systems that mirror those of Medicare.
To clamp down on suspected over-billing for services by physicians in outpatient settings, Medicare has taken steps, the result of which is to make the differential between services provided in an inpatient setting larger than it has been in the past. Not surprisingly, hospitals and physicians are reacting as you or I might if we were in their shoes. They’re following the money.
Decisions like this by players within the health-care market have little, if anything, to do with improving the quality of care or reducing its cost. These decisions have to do with maximizing revenue. This is what one should expect within an open-ended, fee-for-service financing model.
On the other hand, what if there were open and free markets for the services these family physicians provide? And what if the price for services were based on the perceived value of the service, not on where the service was delivered?
To make this happen, a number of significant and important changes would have to occur. First, the government would have to get out of ongoing and continuous central planning. By substituting its judgment for the wisdom of the market as to how to best allocate resources, the government has created so many market distortions that health care can no longer legitimately be described as a market. At least not a free market.
The U.S. health-care system suffers from a fate that’s actually worse than centralized planning. In Soviet-style economies, central planning worked within the framework of fixed resources and this led to rationing. In the U.S. health care system, we don’t ration services. Instead, the government has a safety valve – the private sector. Insurers and Patients are expected to pick up the tab for whatever the government won’t pay for.
Government would also have to get comfortable paying providers market prices for services it funds through Medicare and Medicaid. It used to be gospel that these programs deserved preferential pricing because the alternative would be uncompensated care arriving at the doorstep of providers and hospitals. This argument may have had merit early in the development of these programs. But this argument has outlived its usefulness. The time has come to move beyond social policies that deliver preferential pricing for these programs. Pricing policies like this inflict grave harm on the larger market for health-care services.
Second, care providers would have to rationalize their business models and actually become familiar with what they’re charging for their services. Many types of care are necessarily open-ended, because it’s often difficult to estimate or predict what the total price for a regiment of care will be. Diagnosing a particularly vexing ailment is a good example of the kind of service that can be hard to create a fixed price for. On the other hand, a routine physical is pretty straightforward. So is a normal baby delivery. Do you think your doctor knows what he or she charges you for services like these? Probably not.
Third, Insurers, with a helping hand from a newly-restrained government, would need to recognize that their own practices help cloud the market for health-care services. This begs the question: What good is a posted price for services if the actual cost to the consumer is significantly adjusted by a health insurer after the fact?
Under many benefit plans, the only meaningful price distinction drawn is among those providers who are or aren’t in the plan’s network. Provider competition and innovation on the basis of price isn’t going to come anytime soon in this world.
Is all of this going a bridge too far?” Hopefully not, but a realist would have to conclude that achieving even a beach head with these changes represents a lot of heavy lifting. It’s not that it can’t be done. It’s just that in health care, we’ve come to believe that markets don’t work, and that even if they did, we would collectively suffer.
In the meantime, how can we blame the health care market for not working when we don’t have the discipline or conviction it takes to bring it to life?
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